Biweekly payments for auto loans are becoming more popular in this tight economy because they offer advantages to both customers and dealers, say vendors and dealers.

"It's a no-brainer," said Ray Ciccolo, owner of the Village Automotive Group, of Boston, which sells seven brands. Ciccolo said his dealerships started offering biweekly payments a few months ago.

Since his dealerships began offering biweekly payments, Ciccolo said, F&I profits have risen. Biweekly payments account for slightly less than 5 percent of his business, but they are gaining sales as the F&I managers become familiar with the concept.

"Grosses are so minuscule," Ciccolo said. "We're sometimes selling a new car at a loss. If we have an opportunity to make some money on the back end, then we're that much ahead."

The idea behind biweekly payments is simple: Instead of 12 monthly payments cut in half, the customer pays every other week.

Because a year has 52 weeks, paying every other week means 26 biweekly payments or the equivalent of 13 monthly payments in a year. The key is that the extra payments are applied to the loan principal.

As a result, a 60-month loan can be paid off six months faster, according to U.S. Equity Advantage, an Orlando, Fla.-based vendor that markets automated biweekly processing of loans. Moreover, the customer pays less interest over the life of the loan.

How they compare

More consumers are opting for loans with 26 biweekly payments a year rather than 12 monthly payments. Biweekly payments enable consumers to pay off loans faster, thus reducing interest charges.

Biweekly Payment

Standard Loan

Amount financed

$32,000

$32,000

Term

60 months

60 months

Finance rate

8%

8%

Fee

$399

N.A.

Payment

$325.49

$650.98

End date

November 2013

May 2014

Interest paid

$6,392.84

$7,058.67

Total paid

$38,392.84

$39,058.67

Source: U.S. Equity Advantage

U.S. Equity Advantage handles 60,000 new biweekly loans a month, said Bill Lathrop, the company's chief marketing officer. Industrywide, biweekly payments make up less than 5 percent of new loans. But Lathrop said the number is growing.

"In the last quarter, it has just exploded," he said.

Dealers can encourage customers to use some of the money they save on interest to buy other F&I products, such as extended service contracts.

"There's not really a lot of voodoo to it, yet for the same amount of money per month you can add 'this and this and this' F&I product," said Ciccolo of Village Automotive Group. "It makes it a very easy sell."

Many lenders haven't promoted biweekly payments because lenders earn less interest on a loan, said Dave Robertson, executive director of the Association of Finance & Insurance Professionals in Colleyville, Texas.

Moreover, dealers sometimes are reluctant to offer biweekly payment schedules because the store's computer system is set up to handle monthly payments exclusively.

But biweekly payments may gain popularity because the growth of online bookkeeping has made it easier for lenders to accommodate biweekly payments.

Robertson said more people would choose biweekly payments if they were given the option. "You can pay off the loan sooner, or you can extend the term and get a lower monthly payment," he said. "There are a lot of different ways you can skin this cat."